News & Our Thinking

With market volatility on the rise, investors are questioning the outlook for large-cap tech stocks and AI-driven growth. In this discussion, Ward Brown and Jed Ellerbroek break down stock valuations, sector trends, and portfolio positioning in today’s market.

Transcript

Ward Brown: Hi, I’m Ward Brown and I’m here with Jed Ellerbroek, portfolio manager of our Large Cap strategy here at Argent.

So Jed, the volatility has continued in the market as we have gone through these last, particularly this last month or so.  And one of the areas where investors are starting to question is the stocks that have done really well and been the leaders over the last couple of years. And particularly those are those large and mega cap technology names that have been such a big part of the growth story for the last couple of years.

So, when you think about the portfolio and positioning in some of those names as you hold them now, how are you thinking about those tech stocks?

Jed Ellerbroek, CFA: Yeah, it’s been a very tumultuous last couple of months in markets. Investors are really concerned about the continued growth and AI spending and whether the companies doing that big spending are going to get a payoff in terms of revenue and cash flow from all that investment.

Ward: Great, so, obviously the earnings growth has just been profound for a lot of those companies. At the same time, they’ve also become pretty expensive. So when the market and the investors get a little nervous about things, they do look at the valuation of some of those businesses and ask whether the fundamentals can support it.

How are you thinking about that?

Jed: Yeah, the most expensive stocks in the market over the last couple of months have been the worst performers. You mentioned earlier that in 2023 and 2024 there were a lot of those high-flying growth companies that had a lot of momentum in the stock market. That progress has obviously screeched to a halt and even reversed in many cases. And now you see a stock like Nvidia, for example, that trades now at just 25x earnings which is actually towards the low end of its historical range.

And that reflects investors concern about whether this really aggressive spending on data centers and the semiconductors inside them will pay off.

Ward: Great. One of the things that I know we’ve looked at a lot are just the, what the earnings expectations are going forward. But when you look at some of those names, the earnings growth largely is still there.

Jed: It is. And the revisions in, you know, earnings looking forward remain positive. Nvidia’s earnings estimates projections for future years, they continue to rise. We see that also with a lot of the big tech companies.

Ward: So, I think kind of the underlying, fundamental performance of the businesses remains really excellent, and better than other sectors in the economy. Obviously a name like Nvidia and Microsoft, Google and Amazon, they command the majority of the headlines just because most people have heard of them, a lot of people use their products pretty much every single day. But there’s also some other names in the portfolio – a name like ServiceNow, which is a big software business currently held.

What do you think about some of those other ancillary names that are in there?

Jed: Yeah, ServiceNow is in the group that’s been really beaten up most recently. The stock price has declined, I think, 25 percent year-to-date. But it remains a stock that we really like. They actually announce an acquisition this morning where they bought kind of a front end agent AI business from venture capital funded previously.

And we think that’ll help boost their AI offerings and keep growth high.

Ward: That’s great. So changing tones a little bit here… an area of the market that’s just been absolutely abysmal for the last couple years, probably more so than a lot of people realize, is health care. And really owning any health care stocks at all has been a detriment. It’s been tough to find a company doing particularly well. But you do maintain exposure to a number of those businesses.

How are you thinking about health care looking forward?

Jed: Yeah, health care has been the worst performing area of the Argent Large Cap strategy over the last two years now. That’s not a huge surprise. The market has been very strong, so you’d expect to see the more defensive areas, like health care, struggle when the market’s raging.

But, yeah, we continue to like the handful of health care businesses we own, and there are some positive data points here more recently. A couple of those stocks were kind of beaten up on concerns about the government transition with the federal government and new administration. HCA, for example, the large hospital chain, that stock has been weak because of fears about Medicaid cuts that republicans might impose. It seems like republicans are probably not going to make huge cuts to Medicaid, and we’ve actually seen HCA stock be one of our best performers now over the last month. And on the days when the market is down, HCA has often been the best performer in our entire portfolio. So, health care is kind of fulfilling that more defensive, less economically sensitive, role that we originally designed for it.

Ward: That’s great. It is where you get to see some of the benefits of the diversification as part of even a concentrated portfolio like yours.

Jed: Yeah.

Ward: So thanks very much for talking today, and thanks for watching.

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